19 April 2011

The Two Italys

The FT's fascinating discussion of economic differences between northern and southern Italy suggests that the different regional approach to innovation helps to explain the almost 100% difference in per capita GDP (chart above). The north is linked to Germany and sees innovation as central, whereas the south is more state oriented:

Marco Fortis, an Italian economist, says the fate of tens of thousands of entrepreneurs scattered across north and central Italy has for decades been linked to the development of German industry. The small and medium-sized companies that are the backbone of the Italian economy specialise in the manufacture of premium finished products that are bought by German multinationals for assembling high-end goods, be it cars or washing machines.

The fruits of this relationship are reflected in the similar levels of wealth creation in Germany and north and central Italy.

Despite Italy’s sluggish growth of about 1 per cent a year for the past decade, per capita gross domestic product in north and central Italy is more or less equal to that of Germany as a whole. But in Italy’s south GDP per capita is below Portugal, and among the lowest in Europe.

While entrepreneurs in the north and the centre of Italy imitate Germany, industry in the south is far distant, both geographically and culturally. Although there are examples of entrepreneurism in the south, such as wine growers in Sicily, most industry is traditionally controlled and financed by the state.